1 Definition of Economics: Chapter 1 What Is Economics?

Economics, 11e, Global Edition (Parkin)
Chapter 1 What Is Economics?
1 Definition of Economics
1) All economic questions are about

A) how to make money.
B) what to produce.
C) how to cope with scarcity.
D) how to satisfy all our wants.
Answer: C
Topic: Scarcity
Skill: Recognition
Status: Previous edition, Chapter 1
AACSB: Reflective Thinking
2) All economic questions arise because we

A) want more than we can get.
B) want more than we need.
C) have an abundance of resources.
D) have limited wants that need to be satisfied.
Answer: A
Topic: Scarcity
Skill: Recognition
3) Economics is best defined as the study of how people, businesses, governments, and societies
A) choose abundance over scarcity.
B) make choices to cope with scarcity.
C) use their infinite resources.
D) attain wealth.
Answer: B
Topic: Scarcity
Skill: Conceptual
4) Scarcity is a situation in which

A) people cannot satisfy all their wants.
B) most people can get only bare necessities.
C) people can satisfy all their wants.
D) some people can get all they want and some cannot.
Answer: A
Topic: Scarcity
Skill: Recognition
1
Copyright © 2014 Pearson Education, Inc.
5) Economists point out that scarcity confronts
A) neither the poor nor the rich.
B) the poor but not the rich.
C) the rich but not the poor.
D) both the poor and the rich.
Answer: D
Topic: Scarcity
Skill: Conceptual
AACSB: Ethical Reasoning
6) Scarcity is
A) our inability to satisfy all our wants.
B) a situation that exists during economic recessions but not during economic booms.
C) eliminated by choices.
D) an economic problem only for poor people.
Answer: A
Topic: Scarcity
Skill: Recognition
Status: Modified 10th edition
7) When an economist talks of scarcity, the economist is referring to the

A) ability of society to employ all of its resources.
B) ability of society to consume all that it produces.
C) inability of society to satisfy all human wants because of limited resources.
D) ability of society to continually make technological breakthroughs and increase production.
Answer: C
Topic: Scarcity
Skill: Recognition
8) Fundamental economic problems basically arise from

A) the fact that society has more than it needs.
B) turmoil in the stock market.
C) the unequal distribution of income.
D) our wants exceeding our scarce resources.
Answer: D
Topic: Scarcity
Skill: Recognition
2
9) Scarcity exists because
A) society and people are greedy and wasteful.
B) our wants exceed the resources available to satisfy them.
C) of the inefficient choices we make.
D) poor people need more food and other goods.
Answer: B
Topic: Scarcity
Skill: Recognition
10) Scarcity can be eliminated through

A) the use of market mechanisms.
B) exploration that helps us find new resources.
C) wise use of our resources.
D) None of the above because scarcity cannot be eliminated.
Answer: D
Topic: Scarcity
Skill: Recognition
11) As an economic concept, scarcity applies to

A) both money and time.
B) money but not time.
C) time but not money.
D) neither time nor money.
Answer: A
Topic: Scarcity
Skill: Conceptual
12) In every economic system, choices must be made because resources are ________ and our wants are
________.
A) unlimited; limited
B) limited; unlimited
C) unlimited; unlimited
D) limited; limited
Answer: B
Topic: Scarcity
Skill: Conceptual
3
13) The problem of "scarcity" applies
A) only in industrially developed countries because resources are scarce in these countries.
B) only in underdeveloped countries because there are few productive resources in these countries.
C) only in economic systems that are just beginning to develop because specialized resources are scarce.
D) to all economic systems, regardless of their level of development.
Answer: D
Topic: Scarcity
Skill: Conceptual
14) Scarcity requires that people must

A) cooperate.
B) compete.
C) trade.
D) make choices.
Answer: D
Topic: Scarcity
Skill: Conceptual
15) People must make choices because

A) most people enjoy shopping.
B) of scarcity.
C) there are many goods available.
D) None of the above answers is correct.
Answer: B
Topic: Scarcity
Skill: Conceptual
16) An incentive
A) could be a reward but could not be a penalty.
B) could be a penalty but could not be a reward.
C) could be either a reward or a penalty.
D) is the opposite of a tradeoff.
Answer: C
Topic: Incentive
Skill: Recognition
4
17) An inducement to take a particular action is called
A) the marginal benefit.
B) the marginal cost.
C) opportunity cost.
D) an incentive.
Answer: D
Topic: Incentive
Skill: Recognition
18) Economics is best defined as

A) how people make money and profits in the stock market.
B) making choices from an unlimited supply of goods and services.
C) making choices with unlimited wants but facing a scarcity of resources.
D) controlling a budget for a household.
Answer: C
Topic: Definition of Economics
Skill: Recognition
19) The study of economics

A) focuses mainly on individual consumers.
B) arises from the fact that our wants exceed available resources.
C) recognizes that scarcity does not affect rich nations.
D) deals mainly with microeconomics.
Answer: B
Skill: Recognition
20) Economics is best defined as the science of choice and how people cope with
A) differences in wants.
B) differences in needs.
C) scarcity.
D) different economic systems.
Answer: C
Skill: Recognition
5
21) Economics is the study of
A) the distribution of surplus goods to those in need.
B) affluence in a morally bankrupt world.
C) the choices we make because of scarcity.
D) ways to reduce wants to eliminate the problem of scarcity.
Answer: C
Skill: Conceptual
22) The study of the choices made by individuals is part of the definition of
A) microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
Answer: A
Topic: Microeconomics and Macroeconomics
Skill: Recognition
23) In part, microeconomics is concerned with

A) how a business firm decides upon the amount it produces and the price it sets.
B) changes in the economy's total output of goods and services over long periods of time.
C) factors that explain changes in the unemployment rate over time.
D) the Federal Reserve's policy decisions.
Answer: A
Skill: Recognition
24) The study of the decisions of individual units in the economy is known as
A) macroeconomics.
B) microeconomics.
C) the study of incentives.
D) ceteris paribus study.
Answer: B
Skill: Recognition
6
25) Studying the determination of prices in individual markets is primarily a concern of
A) positive economics.
B) negative economics.
C) macroeconomics.
D) microeconomics.
Answer: D
Skill: Recognition
26) The analysis of the behavior of individual decision-making units is the definition of
A) microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
Answer: A
Skill: Recognition
27) Which of the following is a microeconomic topic?

A) How a trade agreement between the United States and Mexico affects both nations' unemployment
rates.
B) Comparing inflation rates across countries.
C) How rent ceilings impact the supply of apartments.
D) How a tax rate increase will impact total production.
Answer: C
Skill: Conceptual
28) Which of the following questions is NOT a microeconomic question?

A) Can the Federal Reserve keep income growing by cutting interest rates?
B) How would a tax on e-commerce affect eBay?
C) What is Britney's opportunity cost of having another baby?
D) Does the United States have a comparative advantage in information technology services?
Answer: A
Skill: Conceptual
7
29) Which of the following is an example of a microeconomic decision?
A) an individual deciding how to allocate the time he or she has for work and leisure
B) a small shoe factory deciding how much leather to purchase for the next quarter's production need
C) a multinational company deciding where to relocate its world headquarter
D) All of the above answers are correct.
Answer: D
Skill: Recognition
30) Which of the following is a microeconomic topic?

A) The reasons why Kathy buys less orange juice.
B) The reasons for a decline in average prices.
C) The reasons why total employment decreases.
D) The effect of the government budget deficit on inflation.
Answer: A
Skill: Recognition
31) Which of the following questions is a topic that would be studied by microeconomics?
A) Why did production and the number of jobs shrink in 2009?
B) Will the current budget deficit affect the well-being of the next generation?
C) How will a lower price of digital cameras affect the quantity of cameras sold?
D) What is the current unemployment rate in the United States?
Answer: C
Skill: Conceptual
32) An example of a question that might be explored in microeconomics is to determine

A) the number of workers employed by Intel.
B) savings by the household sector.
C) why the U.S. economy has grown more rapidly than the Japanese economy.
D) the total employment within the U.S. economy.
Answer: A
Skill: Conceptual
8
33) In part, microeconomics is concerned with the study of
A) unemployment and economic growth.
B) the Federal Reserve's policies.
C) the effect government regulation has on the price of a product.
D) national output of goods and services.
Answer: C
Skill: Conceptual
34) The branch of economics that deals with the analysis of the whole economy is called
A) macroeconomics.
B) marginal analysis.
C) microeconomics.
D) metroanalysis.
Answer: A
Skill: Recognition
35) Macroeconomics is concerned with

A) individual consumers.
B) government decision making concerning farm price supports.
C) economy-wide variables.
D) the effects on Ford Motor of a strike by the United Auto Workers.
Answer: C
Skill: Recognition
36) Macroeconomics differs from microeconomics in that:

A) macroeconomics studies the decisions of individuals.
B) microeconomics looks at the economy as a whole.
C) macroeconomics studies the behavior of government while microeconomics looks at private
corporations.
D) macroeconomics focuses on the national economy and the global economy.
Answer: D
Skill: Recognition
9
37) Which of the following is a macroeconomic decision or concept?
A) the price of oil
B) how many television sets to produce
C) the unemployment rate for the entire economy
D) the unemployment rate for each firm
Answer: C
Skill: Conceptual
38) Which of the following questions is a macroeconomic issue?

A) How many more pounds of cookies will a consumer purchase if the price of cookies decreases?
B) What effect would a cure for Mad Cow Disease have on the market for beef?
C) What is the future growth prospect for an economy?
D) How many workers should the owner of a business hire?
Answer: C
Skill: Conceptual
39) In broad terms the difference between microeconomics and macroeconomics is that
A) they use different sets of tools and ideas.
B) microeconomics studies decisions of individual people and firms and macroeconomics studies the
entire national economy.
C) macroeconomics studies the effects of government regulation and taxes on the price of individual
goods and services whereas microeconomics does not.
D) microeconomics studies the effects of government taxes on the national unemployment rate.
Answer: B
Skill: Recognition
40) Which of the following is a macroeconomic issue?

A) How a rise in the price of sugar affects the market for sodas.
B) How federal government budget deficits affect interest rates.
C) What determines the amount a firm will produce.
D) The cause of a decline in the price of peanut butter.
Answer: B
Skill: Conceptual
10
41) Which of the following is a macroeconomic issue?
A) The purchasing decisions that an individual consumer makes.
B) The effect of increasing the money supply on inflation.
C) The hiring decisions that a business makes.
D) The effect of an increase in the tax on cigarettes on cigarette sales.
Answer: B
Skill: Conceptual
42) Macroeconomic topics include

A) total, nationwide employment.
B) studying what factors influence the price and quantity of automobiles.
C) studying the determination of wages and production costs in the software industry.
D) the impact of government regulation of markets.
Answer: A
Skill: Conceptual
43) The fact that wants cannot be fully satisfied with available resources reflects the definition of
A) the what tradeoff.
B) scarcity.
C) the big tradeoff.
D) for whom to produce.
Answer: B
Topic: Study Guide Question, Definition of Economics
Skill: Recognition
44) Studying the effects choices have on the individual markets within the economy is part of
A) scarcity.
B) microeconomics.
C) macroeconomics.
D) incentives.
Answer: B
Topic: Study Guide Question, Macroeconomics
Skill: Recognition
11
45) Economics can be defined as the social science that explains the ________.
A) choices made by politicians
B) choices we make when we trade in markets
C) choices that we make as we cope with scarcity
D) choices made by households
Answer: C
Topic: MyEconLab Questions
Skill: Conceptual
46) Scarcity is a situation in which ________.

A) some people are poor and others are rich
B) something is being wasted
C) we are unable to satisfy all our wants
D) long lines form at gas stations
Answer: C
Skill: Conceptual
47) Microeconomics is the study of ________.

A) the choices that individuals and businesses make
B) all aspects of scarcity
C) the global economy
D) the national economy
Answer: A
Skill: Conceptual
2 Two Big Economic Questions
1) When an economy produces more houses and fewer typewriters, it is answering the ________ part of
one of the two big economic questions.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: A
Topic: What Goods and Services Are Produced?
Skill: Conceptual
12
2) When firms in an economy start producing more computers and fewer televisions, they are answering
the ________ part of one of the two big economic questions.
A) "when"
B) "for whom"
C) "what"
D) "where"
Answer: C
Skill: Conceptual
3) If Taco Bell decides to produce more tacos and fewer burritos, Taco Bell is answering the ________ part
of one of the two big economic questions.
A) "what"
B) "why"
C) "when"
D) "scarcity"
Answer: C
Skill: Conceptual
4) When a farmer decides to raise hogs instead of cattle, the farmer is answering the ________ part of one
of the two big economic questions.
A) "what"
B) "for whom"
C) "how"
D) "why"
Answer: A
Skill: Conceptual
5) When a country decides to produce fewer bombers and more public housing projects, it is answering
A) "how"
B) "what"
C) "defense"
D) "for whom"
Answer: B
Skill: Conceptual
13
6) When a firm decides to produce more electric cars and fewer gas guzzlers, it is most directly answering
A) "how"
B) "scarcity"
C) "what"
D) "for whom"
Answer: C
Skill: Conceptual
7) U.S. producers decide to produce more compact cars and fewer SUVs as the price of gasoline rises.
Producers are answering the ________ part of one of the two big economic questions.
A) "what"
B) "how"
C) "when"
D) "how many"
Answer: A
Skill: Conceptual
8) Which of the following statements is correct?

A) The United States produces more goods than services.
B) The United States produces more services than goods.
C) The percentage of people producing goods in the United States has steadily increased over the last 60
years.
D) The United States produces an equal amount of goods and services.
Answer: B
Topic: Trends in Production
Skill: Recognition
9) In the U.S. economy, which of the following statements is true?

A) More goods are produced than services.
B) More services are produced than goods.
C) Production is divided evenly between goods and services.
D) The economy is too complex to determine the proportion of production that is devoted to producing
services.
Answer: B
Skill: Recognition
14
10) The largest part of what the United States produces today is ________ such as ________.
A) goods; food and electronic equipment
B) goods; education and entertainment
C) services; trade and health care
D) services; textbooks and computers
Answer: C
Skill: Recognition
11) When China builds a dam using few machines and a great deal of labor, it is answering the ________
part of one of the two big economic questions.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: B
Topic: How Are Goods and Services Produced?
Skill: Conceptual
12) When a textile company keeps track of its inventory using a computer and its competitor uses a pad
of paper and a pencil, they are both answering the ________ part of one of the two big economic
questions.
A) "what"
B) "how"
C) "for whom"
D) "where"
Answer: B
Skill: Conceptual
13) When a California farmer decides to harvest lettuce using machines instead of by migrant workers,
the farmer is answering the ________ part of one of the two big economic questions.
A) "how"
B) "for whom"
C) "scarcity"
D) "what"
Answer: A
Topic: How Are Goods Produced?
Skill: Conceptual
15
14) An art museum decides to offer tours by having visitors listen to cassette tapes rather than have tour
guides. The museum is answering the ________ part of one of the two big economic questions.
A) "scarcity"
B) "what"
C) "why"
D) "how"
Answer: D
Skill: Conceptual
15) The fact that people with higher incomes get to consume more goods and services addresses the
________ part of one of the two big economic questions.
A) "for whom"
B) "when"
C) "where"
D) "how"
Answer: A
Topic: For Whom Are Goods and Services Produced?
Skill: Conceptual
16) Which of the following is NOT a factor of production?

A) the water used to cool a nuclear power plant
B) the effort of farmers raising cattle
C) the wages paid to workers
D) the management skill of a small business owner
Answer: C
Topic: Factors of Production
Skill: Conceptual
17) Which of the following are considered factors of production used to produce goods and services?
I. Land
II. Labor
III. Capital
IV. Entrepreneurship
A) I and II only
B) I and III only
C) I, II and III only
D) I, II, III and IV
Answer: D
Skill: Recognition
16
18) Which of the following is correct? Factors of production are
A) land, labor, the price system, and capital.
B) the inputs used to produce goods and services.
C) the fundamental source of abundance.
D) only land and labor.
Answer: B
Skill: Recognition
19) Factors of production include

A) the economic system.
B) land, labor, capital and entrepreneurship.
C) labor and capital (not land, which is fixed).
D) only capital, land, and labor.
Answer: B
Skill: Recognition
20) Factors of production include all of the following EXCEPT

A) machines made in past years.
B) money.
C) entrepreneurship.
D) a wheat field that is not irrigated.
Answer: B
Skill: Recognition
21) Factors of production are grouped into four categories:

A) land, labor, capital, entrepreneurship.
B) land, labor, capital, money.
C) land, capital, money, entrepreneurship.
D) labor, capital, money, entrepreneurship.
Answer: A
Skill: Recognition
17
A) vans used by a bakery company for deliveries
B) a person developing a production schedule for a new product
C) 175 shares of Microsoft stock
D) wilderness areas that have yet to be developed
Answer: C
Skill: Conceptual
23) Keeping in mind economists' definition of factors of production, which of the following is NOT a
factor of production?
A) money
B) low-skilled labor
C) coal
D) an engineer
Answer: A
Skill: Recognition

A) mineral resources
B) a university professor
C) an apartment building
D) 100 shares of Microsoft stock
Answer: D
Skill: Recognition
25) The income earned by the people who sell the services of the factor of production ________ is called
________.
A) capital; rent
B) entrepreneurship; wages
C) land; profit
D) entrepreneurship; profit
Answer: D
Skill: Recognition
18
26) Which factor of production earns profit?
A) land
B) human capital
C) money
D) entrepreneurship
Answer: D
Skill: Recognition
27) Which factor of production earns most income in the United States?
A) capital
B) labor
C) money
D) entrepreneurship
Answer: B
Skill: Recognition
28) Which of the following best defines capital as a factor of production?

A) The gifts of nature that businesses use to produce goods and services.
B) The knowledge and skills that people obtain from education and use in production of goods and
services.
C) Financial assets used by businesses.
D) Instruments, machines, and buildings used in production.
Answer: D
Topic: Capital Stock
Skill: Conceptual
29) In economics, the term "land" means

A) only land that is used in agricultural production.
B) land, mineral resources, and nature's other bounties.
C) land that is devoted to economic pursuits.
D) land used for agricultural and urban purposes.
Answer: B
Topic: Land
Skill: Recognition
19
30) A natural resource, such as fishing territories, is considered an example of
A) both land and labor.
B) land, labor, capital and entrepreneurship.
C) land only.
D) only capital.
Answer: C
Topic: Land
Skill: Recognition
31) The "gifts of nature" are included as part of which factor of production?
A) labor
B) land
C) capital
D) entrepreneurship
Answer: B
Topic: Land
Skill: Conceptual
32) Copper falls into which factor of production category?

A) land
B) labor
C) capital
D) entrepreneurship
Answer: A
Topic: Land
Skill: Conceptual
33) Overtime worked by a JCPenney associate is considered ________ and earns ________.
A) labor; wages
B) entrepreneurship; profit
C) human capital; interest
D) labor; profit
Answer: A
Topic: Labor
Skill: Conceptual
20
34) The term human capital refers to
A) labor resources used to make capital equipment.
B) buildings and machinery.
C) people's knowledge and skill.
D) entrepreneurship and risk-taking.
Answer: C
Topic: Human Capital
Skill: Recognition
35) Human capital is

A) all capital owned by individuals, but not by corporations or governments.
B) all capital owned by individuals or corporations, but not by governments.
C) machinery that meets or exceeds federal safety standards for use by humans.
D) the skill and knowledge of workers.
Answer: D
Skill: Recognition
36) Joy is training to become a chef. The skills she is obtaining from her training and education will
increase Joy's ________.
A) human capital
B) physical capital
C) entrepreneurship
D) None of the above answers are correct.
Answer: A
Skill: Conceptual
37) Which of the following is NOT an investment in human capital?

A) a business student takes a seminar in using a laptop computer
B) a student purchases a laptop computer
C) a computer science student learns how to repair a laptop computer
D) a computer science student takes a course on programming a laptop computer
Answer: B
Skill: Conceptual
21
38) Samantha goes to college to become an engineer. This is an example of an
A) investment in physical capital.
B) investment in human capital.
C) increase in entrepreneurship.
D) increase in labor.
Answer: B
Skill: Conceptual
39) In economics, the term "capital" refers to

A) the money in one's pocket.
B) buildings and equipment.
C) mineral resources.
D) consumer goods.
Answer: B
Topic: Capital
Skill: Recognition
40) Human resources that perform the functions of organizing, managing, and assembling the other
resources are called
A) physical capital.
B) venture capital.
D) productive capital.
Answer: C
Topic: Entrepreneurship
Skill: Recognition
41) The economic resource that organizes the use of other economic resources is called
A) labor.
B) capital.
D) land.
Answer: C
Skill: Recognition
22
42) Entrepreneurs do all of the following EXCEPT
A) organize labor, land, and capital.
B) come up with new ideas about what and how to produce.
C) bear risk from business decisions.
D) own all the other resources used in the production process.
Answer: D
Skill: Recognition
43) Entrepreneurs directly do all of the following EXCEPT

A) create new ideas about what and how to produce.
B) make business decisions.
C) face risks that arise from making business decisions.
D) decide for whom goods and services are produced.
Answer: D
Skill: Recognition
44) Differences in income are most directly related to which of the following economic question?
A) What goods and services are produced?
B) In what quantities are various goods and services produced?
C) How are goods and services produced?
D) Who consumes the goods and services that are produced?
Answer: D
Skill: Conceptual
45) The fact that some people can afford to live in beautiful homes while others are homeless, is most
directly an example of an economy facing the ________ part of one of the two big economic questions.
A) "for whom"
B) "when"
C) "how"
D) "why"
Answer: A
Skill: Conceptual
23
46) The fact that a rock star earns $5 million a year while a teacher earns $25,000 annually is most directly
an example of an economy answering the ________ part of one of the two big economic questions.
A) "when"
B) "for whom"
C) "how"
D) "why"
Answer: B
Skill: Conceptual
47) One economist says that raising taxes on gas would be in the social interest. What does this economist
mean?
A) Higher taxes on gas would benefit society as a whole.
B) Raising taxes on gas would benefit most of the people.
C) Higher taxes on gas would benefit everyone.
D) Both answers A and C are correct.
Answer: A
Topic: Social Interest
Skill: Conceptual
48) An outcome is considered efficient if

A) it is not possible to make someone better off without making anyone else worse off.
B) it is the best available choice for an individual.
C) it results in fair shares for everyone involved.
D) it is possible to make someone better off without making anyone else worse off.
Answer: A
Topic: Self-Interest and Social Interest
Skill: Definition
Status: New
49) Suppose Company A's profits increase by $10 million and nobody is made worse off. The CEO of
Company A keeps all $10 million for herself. This situation
A) is definitely efficient.
B) is definitely not in the self-interest of Company A.
C) is definitely not in the social interest.
D) is definitely fair.
Answer: A
Topic: Self-Interest and Social Interest
Skill: Conceptual
Status: New
AACSB: Analytical Skills
24
50) The Occupy Wall Street movement advocates
A) a shift away from market capitalism.
B) a shift towards more market capitalism.
C) centrally planned socialism.
D) following the teachings of Adam Smith.
Answer: A
Topic: At Issue: The Protest Against Market Capitalism
Skill: Conceptual
Status: New
51) An economic system in which the government decides what, how, and for whom to produce, directs
workers to jobs, and owns all the land and capital is
A) centrally planned socialism.
B) market capitalism.
C) mixed economy.
D) supported by economists as the best system available.
Answer: A
Skill: Definition
Status: New
52) According to Adam Smith,

A) government intervention in markets is not desirable because an invisible hand leads decisions made in
pursuit of self-interest to unintentionally promote the social interest.
B) politicians are well-equipped to regulate corporations and intervene in markets to improve market
outcomes.
C) when big corporations pursue their self-interest of maximum profit, they will inevitably conflict with
social interest.
D) in a market transaction buyers can either get what they want for less than they would be willing to
pay or sellers can earn a profit, but both buyers and sellers can't gain simultaneously.
Answer: A
Skill: Conceptual
Status: New
53) The 2010 Patient Protection and Affordable Care Act (Obamacare) contains a provision that may
require individuals to either purchase private health insurance or pay a tax. This is an example of
A) a mixed economy.
B) market capitalism.
C) centrally planned socialism.
D) the invisible hand.
Answer: A
Skill: Conceptual
Status: New
25
54) According to economists,
A) market capitalism is the best system available and some government intervention and regulation can
either help or harm the social interest.
B) market capitalism is the best system available and any government intervention and regulation will
inevitably harm the social interest.
C) centrally planned socialism is the best system available since governments generally make decisions
that are in social interest.
D) centrally planned socialism and pure market capitalism are equally capable of promoting social
interest, but a mixed economy is an undesirable compromise between the two that will harm social
interest.
Answer: A
Skill: Conceptual
Status: New
55) Which of the following is NOT part of the first big economic question?
A) What goods and services are produced?
B) How are goods and services produced?
C) For whom are goods and services produced?
D) Why do incentives affect only marginal costs?
Answer: D
Topic: Study Guide Question, Two Big Economic Questions
Skill: Analytical
3 The Economic Way of Thinking
1) In economics we learn that

A) tradeoffs allow us to have more of everything we value.
B) tradeoffs allow us to avoid the problem of opportunity cost.
C) opportunity costs are all of the possible alternatives given up when we make a choice.
Answer: D
Topic: Tradeoffs
Skill: Conceptual
2) Because we face scarcity, every choice involves

A) money.
B) the question "what."
C) giving up something for nothing.
D) an opportunity cost.
Answer: D
Topic: Tradeoff and Opportunity Cost
Skill: Conceptual
26
3) The term used to emphasize that making choices in the face of scarcity involves a cost is
A) substitution cost.
B) opportunity cost.
C) utility cost.
D) accounting cost.
Answer: B
Topic: Opportunity Cost
Skill: Recognition
4) The loss of the highest-valued alternative defines the concept of

A) marginal benefit.
B) scarcity.
D) opportunity cost.
Answer: D
Skill: Recognition
5) Opportunity cost means the

A) accounting cost minus the marginal cost.
B) highest-valued alternative forgone.
C) accounting cost minus the marginal benefit.
D) monetary costs of an activity.
Answer: B
Skill: Recognition
6) The opportunity cost of any action is

A) all the possible alternatives given up.
B) the highest-valued alternative given up.
C) the benefit from the action minus the cost of the action.
D) the dollars the action cost.
Answer: B
Skill: Recognition
27
7) The opportunity cost of something you decide to get is
A) all the possible alternatives that you give up to get it.
B) the highest valued alternative you give up to get it.
C) the value of the item minus the cost you paid for it.
D) the amount of money you pay to get it.
Answer: B
Skill: Recognition
8) Opportunity cost is best defined as

A) how much money is paid for something.
B) how much money is paid for something, taking inflation into account.
C) the highest-valued alternative that is given up to get something.
D) all the alternatives that are given up to get something.
Answer: C
Skill: Recognition
9) Which of the following statements are correct?

I. The "highest-valued alternative given up to get something" is the opportunity cost.
II. Wealthy economies don't experience opportunity costs.
III. Scarcity creates opportunity costs.
A) I only
B) I and II
C) I and III
D) I, II, and III
Answer: C
Skill: Recognition
10) Opportunity cost is defined as the

A) total value of all the alternatives given up.
B) highest-valued alternative given up.
C) cost of not doing all of the things you would like to do.
D) lowest-valued alternative given up.
Answer: B
Skill: Recognition
28
11) You have the choice of going on vacation to Florida for one week, staying at work for the week, or
spending the week doing fix-up projects around your house. If you decide to go to Florida, the
opportunity cost of the trip is
A) working and doing fix-up projects.
B) working or doing fix-up projects, depending on which you would have done otherwise.
C) working because you would be giving up dollars.
D) nothing
because you will enjoy the trip to Florida.
Answer: B
Skill: Conceptual
12) The night before a midterm exam, you decide to go to the movies instead of studying for the exam.
You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent.
What was the opportunity cost of your evening at the movies?
A) 10 percent off your grade
B) 60 percent
C) 70 percent
D) zero
Answer: A
Skill: Conceptual
13) On Saturday morning, you rank your choices for activities in the following order: go to the library,
work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library.
Your opportunity cost is
A) working out at the gym, having breakfast with friends, and sleeping late.
B) working out at the gym.
C) zero because you do not have to pay money to use the library.
D) not clear because not enough information is given.
Answer: B
Skill: Conceptual
29
14) Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know
that
A) both bear an opportunity cost of seeing the movie because they could have done other things instead
of seeing the movie.
B) both bear the same opportunity cost of seeing the movie because they are doing the same thing.
C) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free.
D) the opportunity cost of seeing the movie is zero because the tickets were free.
Answer: A
Skill: Conceptual
15) You have the choice of going to Hawaii for a week, staying at work for the week, or spending the
week skiing. If you decide to go to Hawaii, the opportunity cost is
A) the value of working and skiing.
B) the value of working or skiing, depending on which you would have done rather than go to Hawaii.
C) working, because you would be giving up a week's pay.
D) None of the above if you enjoy the time spent in Hawaii.
Answer: B
Skill: Conceptual
16) Today, Julie attended her 12:30 Economics class. If she hadn't gone to class, Julie would have gone out
to lunch with friends. She had other options; she could have worked or slept in. Julie's opportunity cost of
going to class is the
A) income she gave up.
B) lunch she gave up.
C) sleep she gave up.
D) income, pleasure, and sleep she gave up.
Answer: B
Skill: Conceptual
17) Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe
attending his morning class for one hour is
A) an hour of tennis given up.
B) an hour of sleep given up.
C) both the tennis given up and the sleep given up.
D) nothing because he is paying for his class.
Answer: B
Skill: Conceptual
30
18) John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second
go to a movie, third study for an economics exam, and fourth answer his e-mail. What is the opportunity
cost of attending the concert for John?
A) attending a movie
B) studying for an economics exam
C) answering his e-mail
D) attending a movie, studying for an economics exam, and answering his e-mail
Answer: A
Skill: Conceptual
19) You decide to take a vacation and the trip costs you $2,000. While you are on vacation, you do not go
to work where you could have earned $750. In terms of dollars, the opportunity cost of the vacation is
A) $2,000.
B) $750.
C) $2,750.
D) $1,250
Answer: C
Skill: Conceptual
20) The opportunity cost of attending college includes the cost of

A) the tuition but not the job at which you would otherwise have worked.
B) the highest valued alternative to attending college.
C) the highest valued alternative to attending college plus the cost of tuition.
D) tuition, books, and the lost wages for the hours spent studying.
Answer: C
Skill: Conceptual
21) Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C. Each costs
ten dollars. If she decides that Brand A meets her needs best, then the opportunity cost of this decision is
A) Brand B plus Brand C.
B) twenty dollars.
C) Brand A.
D) Brand B or Brand C, depending on which is considered the highest-value alternative forgone.
Answer: D
Skill: Conceptual
31
22) Which of the following is NOT an example of an opportunity cost?
A) By spending Thursday night studying for an economics exam, a student was unable to complete a
homework assignment for calculus class.
B) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last
year.
C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is
moving into a bigger apartment.
D) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she
gave up more than $85,000 in earnings while she was in college.
Answer: C
Skill: Conceptual
23) From 8 to 11 p.m., Sam can either attend a basketball game, a hockey match or the symphony.
Suppose that Sam decides to attend the hockey match and thinks to herself that if she did not go to the
match she would go to the symphony. Then the opportunity cost of attending the hockey match is
A) going to the symphony and the basketball game.
B) going to the symphony.
C) going to the basketball game.
D) three hours of time.
Answer: B
Skill: Conceptual
24) After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics
for $45,000.00 a year. The two other offers you received were working for Wal-Mart for $38,000 and
working for Ernst and Young consulting for $42,000. Of these two offers, you would have preferred the
job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor
Statistics?
A) the $45,000 you are paid for working at the Bureau of Labor Statistics
B) the $42,000 you would have been paid working for Ernst and Young
C) the $38,000 you would have been paid working for Wal-Mart
D) the $42,000 you would have been paid working for Ernst and Young and the $38,000 you would have
been paid working for Wal-Mart
Answer: B
Skill: Analytical
32
25) Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a
year or coaching for $50,000 a year. He decides to play football, but eight years later, though he could
continue to play football at $2 million a year, he quits football to make movies for $3 million a year. His
opportunity cost of playing football at graduation was ________ and eight years later the opportunity cost
of making movies was ________.
A) $50,000; $2 million
B) $2 million; $2 million
C) $2 million; $3 million
D) $50,000; $50,000
Answer: A
Skill: Analytical
26) During the summer you have made the decision to attend summer school, which prevents you from
working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost
is $3,000 and books and supplies cost $1,300. In terms of dollars, the opportunity cost of attending
summer school is
A) $10,300.
B) $6,000.
C) $4,300.
D) $3,300.
Answer: A
Skill: Analytical
27) The term "opportunity cost" points out that

A) there may be such a thing as a free lunch.
B) not all individuals will make the most of life's opportunities because some will fail to achieve their
goals.
C) executives do not always recognize opportunities for profit as quickly as they should.
D) any decision regarding the use of a resource involves a costly choice.
Answer: D
Skill: Conceptual
33
28) When the government chooses to use resources to build a dam, these sources are no longer available
to build a highway. This choice illustrates the concept of
A) a market mechanism.
B) macroeconomics.
D) a fallacy of composition.
Answer: C
Skill: Analytical
29) Jill, an economics student, has already spent 5 hours cleaning her room. In deciding whether or not to
continue cleaning for another hour, she applies the economic principle of
A) scarcity.
B) ceteris paribus.
C) choosing at the margin.
D) productivity.
Answer: C
Topic: Choices at the Margin
Skill: Conceptual
30) Marginal benefit is the benefit

A) that your activity provides to someone else.
B) of an activity that exceeds its cost.
C) that arises from the secondary effects of an activity.
D) that arises from an increase in an activity.
Answer: D
Topic: Marginal Benefit/Marginal Cost
Skill: Recognition
31) A benefit from an increase in activity is called the

A) marginal benefit.
B) economic benefit.
C) total benefit.
D) opportunity benefit.
Answer: A
Topic: Marginal Benefit
Skill: Recognition
34
32) The marginal benefit is the
A) additional gain from one more unit of an activity.
B) additional cost from one more unit of an activity.
C) loss of the highest-valued alternative.
D) additional gain from one more unit of an activity minus the additional cost from one more unit of the
activity.
Answer: A
Skill: Recognition
33) In terms of dollars, the marginal benefit of working five days a week instead of four days a week is
A) the wages received for the fifth day of work.
B) the wages received for 5 days of work.
C) the wages received for 4 days of work.
Answer: A
Skill: Recognition
34) Your employer has asked you to start working overtime and has offered to pay $18 per hour for every
hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to
be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of
overtime?
A) zero
B) $3.00
C) $15.00
D) $18.00
Answer: D
Skill: Analytical
35) A student is studying for an exam 2 hours a day and is debating whether to study an extra hour. The
student's marginal benefit
A) depends on the grade the student earns on the exam.
B) is the benefit the student receives from studying all 3 hours.
C) is the benefit the student receives from studying the extra hour.
D) is greater than the student's marginal cost.
Answer: C
Skill: Analytical
35
36) A student athlete is deciding whether to work out for an extra hour. Her marginal benefit from
another hour of exercise
A) is the benefit she gets from all the hours she's worked out all week.
B) is the benefit she receives from exercising the additional hour.
C) is less than the marginal cost of the additional hour.
D) depends on the cost of the workout.
Answer: B
Skill: Analytical
37) Suppose that you are spending two hours a day studying economics, and your grade is 85 percent.
You want a higher grade and decide to study for an extra hour a day. As a result, your grade rises to 90
percent. Your marginal benefit is the
A) 5 point increase in your grade minus the opportunity cost to you of spending the hour studying.
B) extra hour per day you spend on studying.
C) 5 point increase in your grade.
D) three hours per day you spend on studying.
Answer: C
Skill: Conceptual
38) Marginal cost is the cost

A) that your activity imposes on someone else.
B) that arises from an increase in an activity.
C) of an activity that exceeds its benefit.
D) that arises from the secondary effects of an activity.
Answer: B
Topic: Marginal Cost
Skill: Recognition
39) A cost due to an increase in activity is called

A) an incentive loss.
B) a marginal cost.
C) a negative marginal benefit.
D) the total cost.
Answer: B
Skill: Recognition
36
40) Marginal cost is the
A) cost of an increase in an activity.
B) total cost of an activity.
C) cost of an activity minus the benefits of the activity.
D) cost of all forgone alternatives.
Answer: A
Skill: Recognition
41) Laura is a manager for HP. When Laura must decide whether to produce a few additional printers,
she is choosing at the margin when she compares
A) the total revenue from sales of printers to the total cost of producing all the printers.
B) the extra revenue from selling a few additional printers to the extra costs of producing the printers.
C) the extra revenue from selling a few additional printers to the average cost of producing the additional
printers.
D) HP's printers to printers from competing companies, such as Lexmark.
Answer: B
Topic: Marginal Analysis
Skill: Conceptual
42) A lawn service is deciding whether to add an additional employee to its summer crew. The marginal
cost of hiring this worker depends on the
A) total amount paid to only the new worker.
B) total amount paid to all previously hired workers.
C) the total amount paid to all the workers, both the new one and the previously hired workers.
D) the additional revenue created by having an additional worker minus the cost of hiring the worker.
Answer: A
Skill: Analytical
43) If the marginal cost of an activity exceeds the marginal benefit, then
A) the activity will occur because the high marginal cost means it must be highly valued.
B) the forgone alternatives' costs must be increased.
C) an alternative action will be selected.
D) the person must concentrate on the activity's total benefits.
Answer: C
Skill: Conceptual
37
44) A store remains open from 8 a.m. to 4 p.m. each weekday. The store owner is deciding whether to
stay open an extra hour each evening. The owner's marginal benefit
A) is the benefit the owner receives from staying open from 8 a.m. to 5 pm.
B) depends on the revenues the owner makes during the day.
C) must be greater than or equal to the owner's marginal cost if the owner decides to stay open.
D) is the benefit the owner receives from staying open from 8 a.m. to 6 pm.
Answer: C
Skill: Analytical
45) Which of the following creates an incentive to increase the amount of an activity?
A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of the activity
B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of the activity
C) constant marginal cost and constant marginal benefit of the activity
D) None of the above create an incentive to increase the amount of an activity.
Answer: B
Topic: Incentives, Marginal Cost and Marginal Benefit
Skill: Conceptual
46) Suppose that the government of New York state promises to decrease taxes to a firm if it decides to
stay in New York instead of moving to another state. This policy on the part of the state constitutes
________, to make the ________ of the firm remaining in New York.
A) an incentive; marginal benefit exceed the marginal cost
B) an incentive; marginal cost exceed the marginal benefit
C) a command; marginal benefit exceed the marginal cost
D) a command; marginal cost exceed the marginal benefit
Answer: A
Skill: Conceptual
47) Jed had an exam score of 50 percentage points. There is an extra credit assignment that Jed can
complete that will raise his exam score by 20 percentage points. Jed has determined that the extra credit
assignment will take 10 hours of his time. Jed will complete the assignment he values the
A) 20 percentage points more than the 10 hours of his time.
B) 10 hours of his time more than the 20 percentage points.
C) 70 percentage points more than the 10 hours of his time.
D) wants a higher score.
Answer: A
Skill: Analytical
38
48) From 8 P.M. to 10 P.M.., Susan can attend a movie, study, or talk with friends. Suppose that Susan
decides to go to the movie but thinks that, if she hadn't, she would otherwise have talked with friends.
The opportunity cost of attending the movie is
A) talking with friends and studying.
B) studying.
C) talking with friends.
D) two hours of time.
Answer: C
Topic: Study Guide Question, Opportunity Cost
Skill: Conceptual
49) When the government hires people to serve in the army, these people are no longer available to do
other work. This choice illustrates the concept of
A) an incentive.
B) a social interest/private interest conflict.
D) marginal benefit.
Answer: C
Topic: Study Guide Question, Opportunity Cost
Skill: Conceptual
50) When the government chooses to spend the tax dollars that it collects on homeland security, its choice
________.
A) involves a tradeoff of other goods and services such as education for more homeland security
B) illustrates that scarcity does not always exist
C) involves no tradeoff because the defense is necessary
D) primarily affects who gets the goods and services produced.
Answer: A
Skill: Conceptual
51) Making a choice at the margin means ________.

A) letting someone else choose for you
B) waiting until the last minute to make a choice
C) deciding to do a little bit more or a little bit less of an activity
D) making a choice by comparing the total benefit and the total cost
Answer: C
Skill: Recognition
39
52) Suppose that for the past two months, you have studied economics one hour a day. You now decide
to study economics two hours a day. For the past two months, ________.
A) your marginal cost of studying economics for an hour must have exceeded its marginal benefit
B) the marginal cost of studying economics must have fallen
C) your marginal benefit from studying economics an hour must have been greater than its marginal cost
D) the opportunity cost of studying economics must have risen.
Answer: C
Skill: Recognition
4 Economics as Social Science and Policy Tool
1) In economics, positive statements are about

A) the way things ought to be.
B) the way things are.
C) macroeconomics, not microeconomics.
D) microeconomics, not macroeconomics.
Answer: B
Topic: Positive and Normative
Skill: Recognition
2) A positive statement is
A) about what ought to be.
B) about what is.
C) the result of a model's normative assumptions.
D) valid only in the context of a model with simple assumptions.
Answer: B
Skill: Recognition
3) A positive statement is
B) about what is.
C) always true.
D) one that does not use marginal concepts.
Answer: B
Skill: Recognition
40
4) Which of the following are true regarding "positive" statements?
I. They describe what "ought to be."
II. They describe what is believed about how the world appears.
III. They can be tested as to their truthfulness.
A) I and II
B) II and III
C) I and III
D) I, II and III
Answer: B
Skill: Recognition
5) Positive and normative statements differ in that

A) positive statements can be tested, whereas normative statements cannot.
B) normative statements can be tested, whereas positive statements cannot.
C) normative statements depict "what is" and positive statements depict "what ought to be."
D) normative statements never use the word "should."
Answer: A
Skill: Recognition
6) Positive economic statements

A) prescribe what should be.
B) are related only to microeconomics.
C) can be tested against the facts.
D) cannot be tested against the facts.
Answer: C
Skill: Recognition
7) Which of the following is a positive statement?

A) An unemployment rate of 9 percent is a national disgrace.
B) Unemployment is a more important problem than inflation.
C) When the national unemployment rate is 9 percent, the unemployment rate for inner-city youth is
often close to 40 percent.
D) Unemployment and inflation are equally important problems.
Answer: C
Skill: Conceptual
41
A) The United States should fight inflation even if it raises unemployment.
B) What to do with Social Security is the most important economic issue today.
C) A 5 percent increase in income leads to a 3 percent increase in the consumption of orange juice.
D) Because they decrease productivity, labor unions should be eliminated.
Answer: C
Skill: Conceptual

A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
Answer: A
Skill: Conceptual
10) Which of the following is an example of a positive statement?

A) Government should not redistribute income.
B) Business firms ought to contribute more to charities.
C) Households are the primary source of saving.
D) The foreign sector should be more tightly controlled.
Answer: C
Skill: Conceptual
11) Which of the following is an example of a positive statement?

A) We should cut back on our use of carbon-based fuels such as coal and oil.
B) Increasing the minimum wage results in more unemployment.
C) Every American should have equal access to health care.
D) The Federal Reserve ought to cut the interest rate.
Answer: B
Skill: Conceptual
42
A) Taxes should be lower because then people get to keep more of what they earn.
B) My economics class should last for two terms because it is my favorite class.
C) A 10 percent increase in income leads to a 4 percent increase in the consumption of beef.
D) Given their negative impact on productivity, the government should eliminate labor unions.
Answer: C
Skill: Conceptual

A) Our planet is warming because of an increased carbon dioxide buildup in the atmosphere.
B) A minimum wage of $7.50 per hour is a shame for a rich country like the United States.
C) Both of these statements are positive.
D) Neither of these statements is positive.
Answer: A
Skill: Conceptual

A) The government must lower the price of a pizza so that more students can afford to buy it.
B) The best level of taxation is zero percent because then people get to keep everything they earn.
C) My economics class should last for two terms because it is my favorite class.
D) An increase in tuition means fewer students will apply to college.
Answer: D
Skill: Conceptual

A) Low rents decrease the amount of housing landlords make available for rent.
B) Low rents are good because they make apartments more affordable.
C) Housing costs too much.
D) Owners of apartment buildings ought to be free to charge whatever rent they want.
Answer: A
Skill: Conceptual
43
16) When Al makes the statement, "The cost of living has increased 10 percent over the past 10 years," he
is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) facing the standard of living tradeoff.
Answer: B
Skill: Conceptual

A) State lotteries are good methods to use for raising revenues.
B) Increased prison sentences are the best way to reduce the crime rate.
C) An increase in gas prices leads people to car pool more.
D) Inflation is a more serious problem than is deflation.
Answer: C
Skill: Conceptual
18) The statement "Managers with a college education earn $18 an hour while ski instructors who did not
complete college earn $10" is
A) a political statement.
B) a positive statement.
C) a normative statement.
D) an ethical statement.
Answer: B
Skill: Conceptual
19) The statement "An increase in the price of gasoline will lead to a decrease in the amount purchased" is
D) a scientific statement.
Answer: B
Skill: Conceptual
44
20) The statement "The unemployment rate for teens is higher than that for adults" is
D) an ethical statement.
Answer: B
Skill: Conceptual
21) Which of the following is NOT a normative statement?

A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
Answer: A
Skill: Conceptual
22) A normative statement concerns

A) what is provable.
B) what is correct.
C) what is incorrect.
D) a value judgment.
Answer: D
Skill: Recognition
23) Normative economic statements

A) describe what ought to be.
B) describe what is rather than what ought to be.
C) describe the process of economic policy-making.
D) deal with economic hypotheses that are not well-established laws.
Answer: A
Skill: Recognition
45
24) The statement that "peach ice cream is better than chocolate ice cream"
A) can be tested using the scientific approach.
B) is a normative statement.
C) is a positive statement.
D) provides a basis for predicting which type of ice cream will exhibit the most sales.
Answer: B
Skill: Conceptual
25) The statement "Unemployment should be below 6 percent" is

A) a positive statement.
B) a normative statement.
C) a prediction.
D) an assumption.
Answer: B
Skill: Conceptual
26) Statements about what ought to be are called

A) positive statements.
B) normative statements.
C) assumptions.
D) implications.
Answer: B
Skill: Recognition
27) Normative statements are statements about

A) prices.
B) quantities.
C) what is.
D) what ought to be.
Answer: D
Skill: Recognition
46
28) A normative statement is
B) about what is.
C) always true.
D) one that does not use marginal concepts.
Answer: A
Skill: Recognition
29) In economics, normative statements are about

A) the way things ought to be.
B) the way things are.
C) marginal benefits, not marginal costs.
D) marginal costs, not marginal benefits.
Answer: A
Skill: Recognition
30) Which of the following is a normative statement?

A) The price of candy bars is $1.25 each.
B) Candy bars are more expensive than newspapers.
C) You should eat less candy.
D) Popcorn and candy are sold in movie theaters.
Answer: C
Skill: Conceptual

A) The unemployment rate is too high.
B) Forty percent of the public believes that the unemployment rate is too high.
C) The unemployment rate rose last month.
D) None of the above are normative statements.
Answer: A
Skill: Conceptual
47
A) The United States has a comparative advantage compared to the European Union in the production of
wheat.
B) The main reason why the United States has a trade deficit with China is because China's trade practices
are unfair.
C) Both these statements are normative.
D) Neither of these statements is normative.
Answer: B
Skill: Conceptual
33) "Government should act to reduce poverty levels."

A) This statement is a normative statement.
B) This statement is a positive statement.
C) This statement is an example of the fallacy of composition.
D) This statement is an example of the post hoc fallacy.
Answer: A
Skill: Conceptual
34) When Susan makes the statement, "The government should spend less money to take care of national
parks," she is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) not dealing with scarcity.
Answer: A
Skill: Conceptual
35) "The rich should pay higher income tax rates than the poor" is an example of a
A) normative statement.
B) positive statement.
C) descriptive statement.
D) theoretical statement.
Answer: A
Skill: Conceptual
48
A) Studying more hours leads to an increase in your GPA.
B) An increase in tax rates means people work fewer hours.
C) Taking extra vitamin C prevents catching a cold.
D) States should require all motorcycle riders to wear helmets to reduce the number of riders killed.
Answer: D
Skill: Conceptual

A) Low rents will restrict the supply of housing.
B) Low rents are good because they make apartments more affordable.
C) Housing costs are rising.
D) Owners of apartment buildings are free to charge whatever rent they want.
Answer: B
Skill: Conceptual

A) Next year's inflation rate will be under 4 percent.
B) Consumers will buy more gasoline over the Christmas holiday even if the price of gas is 10 cents
higher than it was during the Thanksgiving holiday.
C) The government's cuts in welfare spending impose an unfair hardship on the poor.
D) The current butter surplus is the result of federal policies.
Answer: C
Skill: Conceptual
39) Economic models

A) are essentially different from those used in other sciences.
B) always use graphs.
C) simplify reality.
D) include all relevant facts.
Answer: C
Topic: Model Building
Skill: Recognition
49
40) A good economic model
A) describes every aspect of the economic world, with no exception.
B) includes all those features of the world that can be described numerically.
C) includes only those features of the world that are needed for the purpose at hand.
D) should not include more than two variables.
Answer: C
Topic: Model Building
Skill: Recognition
41) An economic model is

A) a generalization that summarizes all the normative assumptions we make about a particular issue.
B) a description of some aspect of the economic world that includes only those features of the world that
are needed for the purpose at hand.
C) a statement that describes how the world should be.
D) a collection of facts that describe the real world.
Answer: B
Topic: Models
Skill: Recognition
42) A normative statement is

B) about what is.
C) always true.
D) one that is based on an economic experiment.
Answer: A
Topic: Study Guide Question, Positive and Normative
Skill: Recognition

A) The government must provide health insurance so that the poor can obtain decent medical treatment.
B) The government should spend more on education.
C) My favorite dinner is pizza and soda.
D) An increase in the price of pizza will lead fewer students to buy pizza.
Answer: D
Topic: Study Guide Question, Positive and Normative
Skill: Recognition
50
44) An economic model includes
A) only normative statements.
B) no use of marginal concepts.
C) all known details in order to increase its accuracy.
D) only details considered essential.
Answer: D
Topic: Study Guide Question, Economic Model
Skill: Recognition
45) The statement that ________ is a positive statement.

A) more students should study economics
B) the price of gasoline is too high
C) too many people in the United States have no health care insurance
D) the price of sugar in the United States is higher than the price in Australia
Answer: D
Skill: Recognition
5 News Based Questions
1) Ben Bernanke, Chairman of the Federal Reserve, must choose whether tomorrow he meets with the
Secretary of the Treasury or with the Congress regarding the financial crisis. This choice reflects the
A) fact that Bernanke faces scarcity.
B) concept of entrepreneurship.
C) fact that Bernanke responds to incentives
D) use of capital.
Answer: A
Topic: Scarcity
Skill: Conceptual
2) When the president of the Bank of America addresses Congress regarding lending standards in that
industry, he is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) incentives.
D) the big tradeoff.
Answer: B
Skill: Conceptual
51
3) When Ben Bernanke, Chairman of the Federal Reserve, addresses Congress regarding the United States
role in the world economy, he is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) scarcity.
D) incentives.
Answer: A
Skill: Conceptual
4) Dell Computers decides to produce PCs and sell them directly over the Internet and via Best Buy. This
is an example of
A) incentives.
B) a microeconomic decision.
C) a macroeconomic decision.
D) scarcity.
Answer: B
Topic: Microeconomics
Skill: Conceptual
5) Consider the following events:

I. Samsung hires associates to market their HDTV sets to Best Buy.
II. The Dallas Cowboys build a new football stadium.
III. eBay fires 10 percent of its workforce.
IV. Ten million stocks were traded on the New York Stock Exchange in one day.
V. Pennsylvania builds a new state park.
Which of the events describe use of factors of production?

A) I, II, III, and V
B) II, IV, and V
C) I and III only
D) IV only
Answer: A
Skill: Conceptual
52
6) Panasonic sends its HDTV salespeople to training sessions. This is an example of
A) a macroeconomic decision.
B) scarcity.
C) a firm investing in workers' human capital
D) entrepreneurship.
Answer: C
Skill: Conceptual
7) "When OPEC increases the supply of oil to the market, the price of gasoline falls." This is an example of
A) a normative statement.
B) the failure of opportunity cost to determine prices.
C) a positive statement.
D) a macroeconomic statement.
Answer: C
Skill: Conceptual
8) "As part of the financial crisis bailout plan in 2009, the Federal Reserve bought stakes in banks. This
policy will result in an increase in the inflation rate." This is an example of
B) a normative statement.
C) a microeconomic statement.
D) an economic model.
Answer: A
Skill: Conceptual
9) "As part of the financial crisis bailout plan in 2008, the Federal Reserve should not bail out banks that
made risky loans." This is an example of
B) the Federal Reserve taking actions that are not at the margin.
C) opportunity costs.
D) a normative statement.
Answer: D
Skill: Conceptual
53
10) "OPEC should supply more oil so that the world's economies can grow more rapidly." This is an
example of
A) a normative statement.
C) a decision at the margin.
D) OPEC overcoming scarcity
Answer: A
Skill: Conceptual
54

1 Definition of Economics: Chapter 1 What Is Economics?

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Economics, 11e, Global Edition (Parkin)

Chapter 1 What Is Economics?

1) All economic questions are about

2) All economic questions arise because we

4) Scarcity is a situation in which

7) When an economist talks of scarcity, the economist is referring to the

8) Fundamental economic problems basically arise from

10) Scarcity can be eliminated through

11) As an economic concept, scarcity applies to

14) Scarcity requires that people must

15) People must make choices because

18) Economics is best defined as

19) The study of economics

23) In part, microeconomics is concerned with

27) Which of the following is a microeconomic topic?

28) Which of the following questions is NOT a microeconomic question?

30) Which of the following is a microeconomic topic?

32) An example of a question that might be explored in microeconomics is to determine

35) Macroeconomics is concerned with

36) Macroeconomics differs from microeconomics in that:

38) Which of the following questions is a macroeconomic issue?

40) Which of the following is a macroeconomic issue?

42) Macroeconomic topics include

46) Scarcity is a situation in which ________.

47) Microeconomics is the study of ________.

2 Two Big Economic Questions

8) Which of the following statements is correct?

9) In the U.S. economy, which of the following statements is true?

16) Which of the following is NOT a factor of production?

19) Factors of production include

20) Factors of production include all of the following EXCEPT

21) Factors of production are grouped into four categories:

24) Which of the following is NOT a factor of production?

28) Which of the following best defines capital as a factor of production?

29) In economics, the term "land" means

32) Copper falls into which factor of production category?

35) Human capital is

37) Which of the following is NOT an investment in human capital?

39) In economics, the term "capital" refers to

43) Entrepreneurs directly do all of the following EXCEPT

48) An outcome is considered efficient if

52) According to Adam Smith,

3 The Economic Way of Thinking

1) In economics we learn that

2) Because we face scarcity, every choice involves

4) The loss of the highest-valued alternative defines the concept of

5) Opportunity cost means the

6) The opportunity cost of any action is

8) Opportunity cost is best defined as

9) Which of the following statements are correct?

10) Opportunity cost is defined as the

20) The opportunity cost of attending college includes the cost of

27) The term "opportunity cost" points out that

30) Marginal benefit is the benefit

31) A benefit from an increase in activity is called the

38) Marginal cost is the cost

39) A cost due to an increase in activity is called

51) Making a choice at the margin means ________.